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Policy Brief: Export Development Canada and Corruption - October 2004

Overview
Corruption has become a focus of national and international concern. Yet Export Development Canada (EDC), a Crown Corporation mandated to promote Canadian trade abroad, has anti-corruption procedures that despite recent improvement, still contain considerable loopholes, meaning that Canadian companies paying bribes abroad are unlikely to be detected and then properly sanctioned.

As a first step towards enhancing its anti-corruption practices, EDC should prohibit Canadian companies found guilty of corruption from all financial support for a minimum of three years, and improve its due diligence procedures particularly with regard to commission payments made by companies to agents.

Export Development Canada and Corruption
In the past decade, corruption has been characterized by the World Bank as the “greatest obstacle to economic and social development”. It undermines democracy, and leads to increased levels of poverty and inequality. Bribery by some global companies only serves to exacerbate the situation. In 1997, the Organization for Economic Cooperation and Development (OECD) adopted the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

In December 1998, the Canadian government both ratified the OECD Convention and enacted new legislation, the Corruption of Foreign Public Officials Act, sending a clear message to the world about where it stood on the issue. In accordance with the act, businesses found guilty of bribing a foreign public official are subject to fines, and individuals to up to ten years in jail.

While many government departments in Canada have a duty to stop Canadian companies paying bribes abroad, EDC has a special responsibility because it directly underwrites companies operating abroad, and often the commission payments that they make while doing so. As a result, in 2003, along with other ECAs, EDC adopted an action statement on bribery. The statement encourages all ECAs to inform businesses applying for support about the legal consequences of bribery, and to have companies sign a declaration indicating that they have not been, nor will, engage in bribery in the project. As a result, EDC now requires clients to sign an anti-corruption declaration.

Despite these new initiatives, last fall, a report released by UNICORN, the Trade Union Anti-Corruption Initiative, ranked EDC 15th out of 28 export credit agencies in terms of measures taken to deter and sanction briberyi. This is because EDC’s policies still have serious loopholes. For example, EDC fails to properly sanction Canadian companies found guilty of corruption, and they also do not require companies to provide any details of commission payments to agents negotiating contracts for them – in other words, they underwrite these payments without requiring companies to provide any explanation of what they are for, and who they are paid to. The UNICORN report recommended that EDC upgrade its procedures, and sanction companies found guilty of corruption.

In July 2004, Acres International, a Canadian engineering firm found guilty of corruption a year earlier in Lesotho, was excluded from World Bank (WB) contracts (See table below). Although EDC was not involved in the transaction, Acres is a repeat customer at EDC. In response, the crown corporation has argued since October 2003 that it is satisfied with the procedures that Acres has put in place to identify, avoid and detect situations involving corruption, and anti-corruption procedures within EDCii. The WB’s decision did not change EDC’s opinion, although EDC did develop a new set of anti-corruption guidelines in June 2004, without any public consultation. These outline the measures that EDC will take where there is evidence that bribery was involved in a transaction, including exclusion from future financing. However, the guidelines still ignore the issue of agent commissions; and while the WB excludes companies for a set period of time, EDC only excludes companies until they have developed the appropriate safeguards to ensure corruption does not happen again. This means that companies can evade any sanction whatsoever, simply by putting in place an anti-corruption procedure as soon as they have been caught paying bribes. This is hardly likely to act as a strong deterrent.

Canadian Acres International guilty of corruption, debarred from World Bank contracts
Acres International is a Canadian multinational engineering firm involved in numerous infrastructure projects around the world. In August 2003, Acres lost its appeal to charges of corruption linked to the Lesotho Highlands Water Project (LHWP). In 2002, it was convicted for bribing an official to win contracts in the $3.3 billion project. In July 2004, the World Bank, which was involved in funding the project, debarred the company for three years from any contracts.

Although neither EDC nor the Canadian International Development Agency (CIDA) were involved in LHWP, both have said that despite the conviction and the World Bank decision to debar the company, they are satisfied with internal systems that the Oakville firm has put in place in the meantime. Therefore, unlike the Bank, neither EDC nor CIDA which currently has three contracts with the company have any plans to debar the company.

Disciplining individuals and companies found guilty of corruption is an essential tool to ensure corporate and democratic accountability. The OECD Convention on Combating Bribery clearly calls for parties to the Convention to impose ‘additional civil or administrative sanctions’, including ‘disqualification from participation in public procurement or from the practice of other commercial activities’ (Article 3).

Policy Recommendation

EDC should halt financing for Canadian companies, including Acres International, found guilty of corruption for a minimum of three years. EDC should then reinstate the company only once an independent review has shown that the company has put in place adequate anti-corruption safeguards.

EDC must improve its due diligence procedures particularly with regard to commission payments made by companies to agents, should require full details to be provided by companies of these payments, and refuse to give support where these details are not provided, are not adequate, or raise suspicions.